The CAPM is built on expected conditions, although we are limited in most cases to using past data in applying it. Betas used in the CAPM, calculated using historical data, are always subject to changes in future volatility and this is a limitation on the use of the CAPM.

Question

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The statement correctly states that the CAPM is built on expected conditions and that beta used in the CAPM, calculated using historical data, is subject to changes in future volatility, which limits the use of the model.

The CAPM Is Built on Expected Conditions, Although We Are